Examining monetary policy reaction in the People’s Republic of China – a Markov switching policy index approach

Paul Gerard Egan, Anthony J. Leddin

    Research output: Contribution to journalArticlepeer-review

    Abstract

    This paper estimates a monetary policy rule for the People’s Republic of China (PRC) using a standard OLS estimation and a Markov switching model. As the People’s Bank of China (PBOC) generally uses a battery of instruments in the conduct of its monetary policy, these models are estimated using a constructed monetary policy index (MPI) in place of the traditional interest rate. This allows for a better understanding of the role the PBOC has played in the PRC’s unprecedented economic growth and its relatively low inflation over the last twenty years. This paper will not only examine the unique characteristics of Chinese monetary policy but may also give a more general insight into the dynamics of monetary policy reactions in other emerging markets and economies in transition.
    Original languageEnglish
    Pages (from-to)165-191
    Number of pages27
    JournalJournal of Chinese Economic and Business Studies
    Volume14
    Issue number2
    DOIs
    Publication statusPublished - 13 May 2016

    Keywords

    • Monetary policy
    • Exchange rate regime
    • Taylor rule
    • Markov switching
    • Structural breaks

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